Uncovered interest parity, forward guidance and the exchange rate

Jordi Galí

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Under uncovered interest parity (UIP), the size of the e¤ect on the real exchange rate of an anticipated change in real interest rate di¤erentials is invariant to the horizon at which the change is expected. Empirical evidence using US, euro area and UK data points to a substantial deviation from that invariance prediction: expectations of interest rate di¤erentials in the near (distant) future are shown to have much larger (smaller) e¤ects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.

Keywords: forward guidance puzzle; uncovered interest rate parity; unconventional monetary policies; open economy New Keynesian model. (search for similar items in EconPapers)
JEL-codes: E43 E58 F41 (search for similar items in EconPapers)
Date: 2017-05, Revised 2020-02
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Uncovered Interest Parity, Forward Guidance and the Exchange Rate (2020)
Working Paper: Uncovered Interest Parity, Forward Guidance, and the Exchange Rate (2020)
Working Paper: Uncovered Interest Parity, Forward Guidance and the Exchange Rate (2018)
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